Jan 30, 2010
The China Crisis Balloon gets hot air | Advantage Research
We warned you, and we warned you at all the right times, still like any other external entity we did not have detailed information with us. After all, it’s China. Still we promised a deep dive for you to do a little analysis on your own.
The State Owned Enterprises have always been large customers in China. They do not pay their bankers and do not ‘lose’ money despite reforms initiated and verbally enunciated by the government which still has the word ‘Communist’ somewhere in the offices of all its governing denizens.
It finally comes out that Goldman Sachs has $80 million due from Shenzen Nanshan Power and Morgan Stanley has written off close to $20 million in Oil derivatives contracts bought in September, as the speculation on OIL dried up in that September – November 2009 window. Morgan Stanley’s customer interestingly is a China Haisheng Juice Holdings. All these derivatives were bought for speculation with Treasury Cash, and none of it will likely be paid back, China backing its state owned enterprises in its courts in any litigation by the Foreign banks.
The Bank Crisis
The Bank Crisis is a little different. State owned enterprises do constitute more than 67% of China’s industrial landscape, but there are other local private sector corporations as well and there are a 5-10% MNC companies that are setting up shop. The Local companies saw 2010 as an opportunity and with CBRC giving banks new annual targets to lend, most of these by habit approached the banks. Chines enterprises have borrowed half of the year’s target in a fortnight. Despite talk of protectionism and restrictive trade policy, China obviously welcomes new investment at this growing period of its economy and put the brakes on in lending when the acceleration affected its own calculations based on its checkered non performing loan record.
We therefore want to present to you some numbers from each of their major banks in the next few research pieces. Please do bookmark http://china.advantages.us and visit often.
Chinese Bank Assets
Bank of China currently has assets of $1.2T, ICBC has total Assets of $1.71T, Bank of America partner China Construction Bank total assets of $1.374 Trillion compared with the Indian Banking systems reserves of $1T and assets of $5 trillion overall. To help with some comparisons for Foreign players down the line, well-developed systems in India have allowed global players to grow up to $25 billion each in assets only, those with the Top 3-4 players like Stanchart, HSBC and Citi. JP Morgan has institutional business in China but not much retail presence, similarly in India
American Wells Fargo Corp has assets of $1.25 T, Bank of America $2.25 T and Citibank has global assets of $1.85 T
Chinese Bank Profits and Reserve Requirements
All the three players mentioned above bring in profits (Net Income) near the range of $41 – $48 billion thru 2008 2009 and 2010 annually. Chinese banks have prudent reserve requirements of less than 15%. NPAs in the banking system have been as high as 20% and never written off.
CCB is more profitable than the others and is part owned by a local PE player after Bank Am’s withdrawal.
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